What is a credit?
Credit is basically borrowed money (from an official or unofficial source) that you need to purchase goods and services. The source of credits is known as a ‘credit grantor’, an individual or an organization willing to lend money on certain terms, for instance, for a certain period of time and a specific amount of interest charge.
According to the type of purchase or services, a credit can categorized into 4 types: –
- Service credit: – this is a credit primarily for availing certain services like electricity charges, phone bills, membership payments and so on. An agreement is arranged with the service providers for such services for which you have to pay them monthly. This type of credit is referred to as service credit.
- Installment credit: – credits like car loans and mortgages come under this type, where you lend a sum of money from the grantor and agree to pay it in regular instalments over a fixed period of time with the interest included.
- Revolving credit: – this is a type of credit in which you’re given a maximum credit limit under which you can purchase goods and services upto the given limit and then pay for it in the form of regular monthly payments. For example, credit card services.
What is a good credit and bad credit? And how can bad credits hurt your budget?
A good credit is a term referred to a situation when the borrower takes the loan from a grantor and pays it in full in the fixed time granted for it. For instance, you carry a credit card for your daily shopping, since you don’t carry a lot of cash around. Each time you go to shop, you purchase a good and pay it using your card. And when the monthly statement comes, you pay it in full without any delays. The market company thus reports this to the credit bureau as a good credit.
And about a bad credit, it is exactly the opposite to that of a good credit. A person is said to in a bad credit statement when he is regularly late in paying off his credits or misses payment for several months. This type of credit rating can hurt your monthly budgets as the amount of credits get piled up and then you have to compensate for it. Later, this leads to compromising your monthly budget to pay the due credits and thus create problems in maintaining the monthly expenditures. For additional reading, you can log into the internet and check for sources that how bad credits can affect your budgets.